Intermediary-driven model

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communication between the farmers and the processor. Therefore, processors first need to develop the commitment of the farmers in order to offer the input supply services effectively.

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milk can be sold quite easily on the informal market. The processed milk or yoghurt is usually sold in small sachets in small shops or kiosks in the vicinity of the farmer groups.

An exceptional case in this model is the dairy company International Dairy Products Limited with an average daily processing of 4,000 liters of milk. This company mainly produces yoghurt, cheese and ice cream for the tourist sector and sells to hotels all over the country.

This firm is included in the intermediary model as is buys mainly from professional dairy farmers (who are outside the focus of this research) and farmer groups that have worked together with an NGO. The latter case is interesting because it is one of the only situations in Tanzania in which a farmer group that has received external support works together with a larger, private dairy firm. Even though the farmer group also sells directly to the market on its own, it sells about half of its daily collection to the dairy company at pre-negotiated terms.

The farmers did not seem particularly happy with these terms of sales, yet the relation had been rather stable for an extended period of time.

Transaction costs

In the intermediary-driven model there is usually no large dairy processor involved. Instead, the farmer groups engage in their own processing activities. This also has an influence on the transaction costs. These are usually addressed by the „management‟ of the farmer group with support of the NGO. Because the basis for this model is the formation of an official farmer group, a sense for cooperation should be present. It is expected that this willingness to work together and shared responsibility reduces the transaction costs to some extent, but it is still worthwhile to investigate the concrete efforts that are made in this model.

The voluntary participation of the farmers in a farmer group demonstrates their intention to be a part of the system and indicates a high motivation to do so. In addition, the support of the NGO usually works as extra motivating factor. Even though legal contracts are also not common in this model, there is a strong social control over the performance of the members.

This sense of responsibility makes farmers more committed to the model and reduces opportunistic behavior such as selling to spot markets for incidentally higher prices.

An additional factor that positively influences the functioning of this model is that the equipment at the MCC is usually owned by the farmer group. This makes the members of the

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farmer group feel more responsible for the operations at the MCC and its performance. As soon as one of the members produces less milk than usually there is an incentive to address this problem as it has an impact on all the members.

Even though the ownership situation in the intermediary-driven model raises commitment, it also has some drawbacks. The equipment for the MCC is sometimes provided by the NGO.

This is useful because it might be too expensive for the farmers to buy all the equipment at once. Farmers are unlikely to make such a big investment on their own as they have few savings and probably would not be very tempted to spend all their money on the equipment.

The result is that the equipment is often given to the farmer group without any costs for the smallholders. This raises the question whether the equipment will be used with the same care as when the farmers would have had to pay for it themselves. In any case it poses unfair competition to farmer groups who did not receive the support. One of the NGOs tried motivate farmers by setting up a repayment scheme in which money was saved with the intention to pay for the equipment. When enough money was saved up, the NGO suggested that the amount should be invested in better equipment or a generator to support the business.

The aim was thus to show the farmers that it was possible to earn money while at the same time saving money for new investments. This approach was often successful according to the NGO.

Another matter is that small farmer associations who own their own equipment are unlikely to work with larger dairy processors. Processing in the intermediary-driven model usually occurs on a limited scale and is unlikely to exceed a daily capacity of about 1000-2000 liters. NGOs normally support an association until its functioning is stable. After that it is up to the farmers.

This is an important limitation to the intermediary-driven model, because a daily production of up to 2,000 liter does not provide ample economies of scale. In addition, it turns out that farmers in the intermediary-driven model are unwilling to cooperate with larger dairy processors and are unable to come to satisfying price agreements. They have such a strong bargaining power because they are full owners of the equipment; this thus leads to a power imbalance that is the opposite of the situation in the buyer-driven model. There is one case in Tanzania in which the farmer association works together with a processor (International Dairy Products Ltd.). According to the farmers, they worked with the processor because they could not find a purpose for all the raw milk that they collected. Therefore, they opted to sell part of

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the milk to the processor, even though they were unsatisfied with the terms of their arrangement.

The management of the collection centers in the intermediary-driven model is usually in the hands of a member of the farmer group. Payment of this person is usually not dependent on the performance of the MCC, so he or she receives a steady salary. As discussed in the buyer-driven model, this type of remuneration does not specifically stimulate the performance of the manager at the MCC. Despite this, and due to the fact that the manager and the farmers are a member of the same farmer group, it is expected that farmers and managers are intrinsically more motivated to deliver to the MCC for it to perform well. Due to these circumstances it is expected that the type of payment to the manager of the MCC is therefore of lower importance in this model.

Middlemen are largely ignored in the intermediary-driven model. In this model, the interest of the farmers to stay closely involved with the MCC is high. Working with middlemen often increases the distance between the MCC and farmer. Because farmers are partial owners in this system they prefer to work in close contact with the system. Farmers thus prefer to bring the milk to the MCC on their own. Another factor adding to this is that some of the farmers groups are located in mountainous areas. In these areas it is hard to move around with large quantities of milk by bike. This also offers an explanation for the relatively short distances that are covered in this model.

Networks

Networks are an important part of the intermediary-driven approach. The precondition to be a registered farmer group indicates that it is very important to take cooperation seriously.

Networks are mainly stressed so much because it is the aim of the intermediary to cease the intervention after a certain period, after which the farmer group is expected to operate independently. NGOs have experienced that the sense of responsibility for the operations at the MCC is stronger when shared with other farmers. When farmers notice that their efforts pay off they are willing to make investments in production and processing equipment in order to develop their market opportunities. Most farmers in this model seemed to be happy with the operations and took it seriously. Even though the gains were not very high, they were content with the opportunity to earn a little extra money that could cover their expenses.

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Resources of the firm

The intermediary-driven model takes a more professional approach to the development of the resources of the farmers. With the support of NGOs, farmers get training in how to handle their animals and take care of them when they are ill. In addition, farmers are stimulated to make use of artificial insemination to breed better cows that give more milk and meat.

Fodders with nutritious ingredients that are good for milk production are also available at the MCC. Many farmers in the intermediary-driven model own cows that are cross-breeds. These cows give more milk and better and more meat. It is a result of stimulating farmers to breed better cows for a long period of time. Already in the 1980-1990‟s the government promoted artificial insemination and this trend was continued by the NGOs after the government reduced its activities. Most of the NGO support went to farmers in mountainous regions. Due to dense forests on the mountain slopes, the traditional herding principle of pastoralism cannot be applied. It thus takes a lot of effort to maintain and feed the cows as they have to be held close to the house in a small enclosed space. Therefore It is convenient to keep better cows so that farmers only need to keep a limited number of cows to reach a satisfactory production capacity.

Due to the close relationship between the farmer group and the MCC, it is also possible to get advance payments in case of emergency. Farmers will repay this advance with their milk delivery. Sometimes the NGO also makes loans available. Farmers use these loans to invest in small businesses or pay unexpected bills. The social system that is created around the milk collection ensures repayment. If farmers in a farmer group default in their loans this has a negative impact on the rest of the group. Therefore this can be considered as a form of social pressure that pushes farmers to repay their loans.